The Benefits of Customizing Client Statements

Clients’ portfolio statements must balance conflicting demands. Some clients will focus on transactions, such as income received, while others zero in on balance summaries. One group will want detailed analytics on risk-adjusted performance; another just wants to know how much they made or lost.

Adviser approaches to providing information in client statements vary as well. Some use the original-format reports produced by their portfolio management or reporting software, modified only to insert the advisory firm’s logo and contact details. Other advisers maintain that customizing statements gives their clients more relevant and useful information while distinguishing their firms from competitors.

Doing It Our Way

Customization methods range from using internal software development to working with a commercial program’s support staff. At the Portfolio Strategy Group (PSG) in White Plains, New York, customized statements have been a staple since the company’s inception in 1990, according to Jacques Boubli, vice president. Richard Yoken, the firm’s founder, initially created statements by collating third-party reports on clients’ positions and typing the information into a format he believed clients would find more useful. The typewriter gave way to Microsoft Word; the firm currently produces its quarterly reports in Microsoft Excel.

Tom Zottner, CFA, managing director at PSG, created the Excel reports using Microsoft’s Visual Basic for Applications (VBA) language. The firm continues to review commercial software, he says, but it has not yet found a program that meets its needs completely. Part of the problem is data based: Migrating clients’ data to another application from where they are stored in Excel would be onerous.

Another reason PSG continues to customize its own reports is that its reports have a unique feature — one that seems not to be reproduced by any other vendor. The bulk of most clients’ portfolios is allocated among a relatively small group of externally managed separate accounts. At the beginning of each quarter, a PSG staff member contacts each account manager to review performance results and any other important developments from the prior quarter. One of the firm’s partners condenses that information to a brief paragraph on the account’s performance drivers, portfolio changes, and any other newsworthy items. Zottner then uses VBA to insert the commentary into the quarterly statement of each client who has an account with that manager so the client can see activity, amounts, performance, and commentary on one page. This approach benefits both clients and the firm, says Zottner: “That leads to a lot of efficiencies for us as a firm. Clients don’t have to be bothered to pick up the phone to find out why this manager underperformed this quarter or this other manager outperformed. The information is already there.”

Internal statement development also allows greater customization to give clients the information they want in their preferred format, says Boubli. Clients often have not only multiple personal accounts but also other accounts that they control, such as those for their children. Consequently, they might want each of those accounts to have its own statement. “A client whose portfolio is more straightforward might have one summary: Here’s how all of your accounts did this quarter, year to date, since inception,” he says. “Another client might want to see their personal accounts separated from their retirement accounts or not have the kids’ accounts included in the summary of all of his accounts. There are a number of examples where the summaries are different and we have multiple summaries in the report for a given relationship.”

The firm mails its printed statements quarterly. It does not provide web-based access to the statements and has no plans to do so. Zottner says clients receive monthly statements from Charles Schwab, the primary custodian, and they can log in to their Schwab accounts for real-time data. That approach might seem outdated in today’s mobile access environment, but he reports that clients are satisfied with the information provided in their quarterly printed statements.

Tweak the Program

Most advisers don’t want to deal with VBA or any other coding language to produce customized reports. It’s more feasible for them to work with a portfolio-reporting software vendor that is willing to modify its application’s output. That’s the approach Clifton Park–based Capital Financial Advisors of New York took, according to Kerry Mayo, CFA, a partner at the firm. Capital Financial Advisors has been using Advent programs for years and eventually migrated to the company’s Black Diamond® platform. Although Mayo and his partners considered competing vendors, such as Orion and others, they ultimately decided to stick with Advent. One reason behind their decision was Black Diamond’s detailed reports on fixed-income positions, he says. Many of the firm’s high-net-worth clients have large bond positions and want detailed information on their holdings. In addition to listing maturities and breaking out coupon payments by month received, the reports list credit ratings, duration and maturity, yield, and other details.

Another factor was Advent’s willingness to modify its reports; when the firm wants to customize client statements, Advent handles the modifications. Most of the requested changes have been relatively straightforward, Mayo explains, because the firm strives to keep its reports clear and easy to understand. The emphasis is on highlighting performance and management fees on both the individual account and overall combined levels.

One modification that can require clarification is the use of custom performance benchmarks that the firm developed and Advent implemented in client reports. Clients often compare their portfolio’s results with popular broad-market measures such as the Dow Jones Industrial Average or the S&P 500 Index. Instead of benchmarking a diversified portfolio solely against the S&P 500 or the Dow, a custom benchmark’s weights could be 20% S&P 500, 10% Russell 2000, and 40% Barclays Capital Aggregate Index (with other indexes constituting the balance). When a client asks about the custom benchmarks, Mayo explains how the client’s portfolio allocation varies from the broader equity market indexes and lines up more closely with the custom measure. Once clients grasp the logic behind the benchmarks, they have a better understanding of how to evaluate the firm’s performance, he says.

Why Bother with Beta?

Mayo’s comment raises the question of how much analytic performance detail clients want to see in their statements. Neal Quon, co-founder and CEO of financial technology consultants QuonWarrene in Orange, California, says that many commercial portfolio management and reporting programs provide modern portfolio theory statistics. But based on his observations of advisers’ practices, typically only a small subset of clients — often those with technical or scientific backgrounds — express interest in detailed performance and risk analytics.

Advisers “want the analytics, and they have access to it if they need it, but they really want the ability to customize reporting, manage their branding, to really extend and enhance that client relationship,” says Quon. “I don’t know if this is always the case, but we often hear comments such as, ‘My clients don’t care about alpha or beta; that’s what they hire us to do. They hire us to manage that. They just want to know, What did I start with and what did I end with, how am I doing in relation to all this news that I’m hearing in the market, and are we OK?’”

As a result, he says, advisers are emphasizing clarity in their statements, with the goal of delivering a readily understandable statement. Although statements are important for recordkeeping, Quon notes, they should serve primarily to improve adviser–client discussions. “How does the adviser continue to provide information about client accounts that keeps the client engaged in the investment process and not panic when markets aren’t cooperative?” he asks. “Because many times, clients can look at a statement and they see red marks all over the place or down values. Without the right context or supporting content, they might panic, and that could put the client–adviser relationship at risk.”

Boubli supports the contention that clients don’t want to get into the weeds of performance analytics. They want to know how their accounts performed on an absolute level and against the appropriate benchmarks. Zottner suspects that “less than 5% of our clients are interested” in volatility measures; hence, the firm does not report them.

Mayo takes a similar approach. The Advent software generates reports that drill down into the performance of the asset classes and investments the firm uses. Although these reports are helpful from an operational investing standpoint, Mayo says, the firm doesn’t share those details with clients. If a client wants a more detailed report, Mayo will develop a spreadsheet with the requested information instead of asking Advent to develop a custom report.

The Next Phase?

Quon points to account aggregation as another trend that is influencing statements’ content. This is not a new technology; to some extent, it’s been a holy grail among financial technology firms for years. He reports that portfolio report developers are actively looking to partner with aggregators or add aggregation services to their products. The motivation is understandable: In theory, aggregation allows an adviser to see and analyze clients’ held-away assets and provide more holistic advice.

Neither Mayo nor Boubli is particularly enthusiastic about aggregation, however. “The data feeds break, and they are a pain to set up,” says Mayo. “They don’t work with double authentication. Whey they break, we go back to asking for monthly 401(k) statements and manually update the data.” The firm is currently considering the idea of a robo-adviser, he adds, and the account aggregation feature with that software has been problem-free so far.

All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Ed McCarthy is an author and freelance finance writer who covers private wealth topics for CFA Institute Magazine. He has written for many of the financial service industry’s leading publications, including Bloomberg Wealth Manager, Institutional Investor online, Financial Planning, Journal of Accountancy, and the Journal of Financial Planning.

More than 130 business leaders have responded to a deadlock in the UK Parliament by signing a letter calling for a second Brexit referendum to prevent a chaotic withdrawal from the EU. "The only feasible way to do this is by asking the people whether they still want to leave the EU," the letter says. CNBC (17 Jan.)

The Chinese government is likely to establish a growth target for this year that falls short of the 6.5% target set for 2018, sources said. This year's target is expected to be 6% to 6.5%. China Daily (Beijing) (18 Jan.)

CFA Institute is the global, not-for-profit association of investment professionals that awards the CFA® and CIPM® designations. We promote the highest ethical standards and offer a range of educational opportunities online and around the world.

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.